Obama will likely trumpet a new financial regulation bill — the biggest overhaul of the system since the Great Depression — as one of his major first-term accomplishments, along with health care and the stimulus plan.

Republicans will likely argue that all three bills threaten prospects for economic recovery.

And now comes yet another 2,000-plus page bill, a financial services “reform” measure that does a lot of things — but fails to address the actual causes of the financial meltdown that began nearly two years ago and has us staggering still. Here’s blogger (and Nobel-prize-winning economist) Gary Becker on the bill’s shortcomings (H/T: Freakanomics):

One of the most serious omissions is that the bill essentially says nothing about Freddie Mac or Fannie Mae. [KP Note: !?!?!?!?] In 2008 these organizations were placed into conservatorship of the Federal Housing Finance Agency. During the run up to the crisis, Barney Frank and others in Congress encouraged Freddie and Fannie to absorb most of the subprime mortgages. In 2008 they held over half of all mortgages, and almost all the subprimes. They have absorbed even a larger fraction of the relatively few mortgages written after 2008. Freddie and Fannie deserve a considerable share of the blame for the crisis, but they continue to have strong political support. I would like to see both of them eventually dissolved, but that is unlikely to happen. Instead we are promised that they will be dealt with in future legislation, but I am skeptical that anything will be done to terminate either organization, or even improve their functioning.

Many proposals in the bill will have highly uncertain impacts on the economy. These include, among many other provisions, the requirement that originators of mortgages and other assets retain at least 5% of the assets they originate, that many derivatives go on organized exchanges (may be an improvement but far from certain), that hedge funds become more closely regulated, and that consumer be “protected” from their financial decisions.

Most of these and other changes in the bill are not based on a serious analysis of what contributed to the financial crisis, but rather are the result of political and emotional reactions to the crisis. Usually, such reactions do more harm than good. That is likely to be the fate of the great majority of the provisions of the Dodd-Frank bill.

In simple terms, the primary enabler of the financial meltdown was the fact that financial institutions had incentives to take huge risks, knowing that any catastrophe would be socialized by a government that would have no choice. WSJ columnist Holman Jenkins today cites new academic research in arguing that the bill doesn’t change that:

What was obvious to common sense, the naked eye and the open ear is now systematically upheld in the research of finance professors. To wit, shareholders of large, publicly traded banks have a higher appetite for risk than is compatible with our regulatory system.

Down this path lies the beginning of wisdom on how we can live with banks, which alone among businesses have the potential to bring down entire economies. Too bad such wisdom is absent from the financial regulation bill now before Congress. …

Let us be realistic about one thing, since most of us aren’t running for office: “Bailout” has become a curse word in populist diction, but “too big to fail” isn’t going away just because regulators pretend next time they would fold their arms and let the system blow up.

The government will and should continue to come to the rescue in a panic. We need better incentives to avoid creating such situations in the first place. But that discipline won’t come from shareholders, who will happily create the next 100-to-1 leveraged financial institution if the potential rewards are great enough. Bank depositors and other leverage suppliers are the ones who must be mobilized to make the system safer.

Becker and Jenkins both describe an opportunity lost that actually would have led to a better alignment of risk and reward. Jenkins is the better writer, let him tell it:

Perhaps the best idea, though, is to require financial firms to fund themselves partly with a special kind of debt that would automatically be converted to equity when a bank’s capital or liquidity are imperiled. These debtholders then would have an incentive to monitor not just the amount of leverage, but the quality of the risks a bank is pursuing.

New Jersey’s new governor is determined to reverse the state’s “failed experiment”, which consists of taxes chasing deficits in an ever-ascending spiral. A Barron’s article does the most concise job I’ve seen of explaining what he’s up against, and why his efforts should be supported.

Photo: NY Post

Unlike his predecessors, Republican Gov. Chris Christie has recognized that high taxes were a problem, not the solutions to the state’s fiscal woes. The Tax Foundation ranks New Jersey as the highest in the nation in state and local taxes as a percentage of income. It’s especially bad for top earners: 4.4% of individuals account for 55% of personal income-tax revenue.

Even though the state faces a $10.7 billion deficit — equal to more than one-third of the total budget — in fiscal 2011 starting July, Christie has refused to raise taxes and further increase this tax burden. Indeed, he has recommended not renewing a 2% “millionaire tax” enacted by former Gov. Jon Corzine, so that the top state income-tax bracket will revert to 8.97%, still among the highest in the nation.

In addition, New Jersey homeowners pay the highest property taxes in the nation, $7,281 on average annually. That represents a 90% increase from 1999 to 2009 — a trend that is driving wealthy New Jerseyans to other states — mainly Florida, Pennsylvania and even New York, according to Boston College’s Center on Wealth and Philanthropy. As [municipal bond analyst Howard J.] Cure notes, for years the migration went in the other direction across the Hudson as heavily taxed New Yorkers sought relief in New Jersey.

When your budget deficit is more than a third of your total budget, you need more than tweaks and nudges to return to financial stability. I strongly suspect that some additional taxation will occur, but when your taxes are the highest in the nation, “no tax increases” is the right starting point for debate. In any discussion of New Jersey’s finances, the burden of proof should be on anyone who opposes spending cuts. After taking on the powerful teachers unions, I hope Christie continues to play hardball.

New Jersey “should be seen as the failed experiment for other states and the country … Spend beyond your means and then kill your tax revenue base by raising taxes 115 times in eight years, and then you’re New Jersey.”

Who is this trash-talking, Jersey-bashing heretic attacking my beloved adopted state? Well, he’s the new Governor of New Jersey, Chris Christie. And I find myself liking him more every time I hear him speak.

I reluctantly voted for Corzine in November, because of Christie’s vow to support a constitutional amendment banning same-sex marriage. Then the cause of same-sex marriage in New Jersey suffered a serious setback when the Senate refused to pass a bill in the waning days of the Corzine administration. That battle eventually will be refought, and I expect I’ll take my shots at Governor Christie then.

But for now, I’m pleased that Christie’s fighting the good fight on fiscal responsibility. The screen capture above from Christie’s recent interview with MSNBC’s token conservative, Joe Scarborough, tells the story starkly. Firing up my calculator, the state budget deficit works out to be more than 36% of the total state budget. It may not be an apples-to-apples comparison, but Obama’s larded-up federal budget deficit appears to work out to “only” 33%.

Christie is making the right kind of enemies. One foolish teachers union official undermined the union’s cause by essentially praying for Christie’s death. And what did the governor do to provoke this death wish? From The Daily Riff:

The proposal by Christie: No job cuts in the education sector if teachers contribute 1 and 1/2 percent of their salary to pay for benefits (approx. $750. per year) and have a one-year pay freeze. If not, approximately 1300 jobs will be cut.

Wow, the teachers might have to pay a whole $750 per year (63 bucks a month, about the same as their union dues) for their generous public-employee health insurance. Between the reasonableness of the proposal and the outrageousness of the death wish, I think the governor will be on pretty solid ground when the layoffs inevitably start.

The 11-minute Scarborough interview is worth watching in its entirety for its look at the plain-spoken and candid governor, who talks to voters like adults.

(Welcome, Maplewood Patch readers, and thanks to Mary Mann for the kind words.)

A summer evening in 1995: My boss’s boss, a Merrill Lynch executive who has never called me at home, calls me at home. His opening line still ranks in my mind as one of the most interesting possible ways to start a business conversation: “Kirk, do you have a passport?”

It turns out I do. “OK, pack a bag, you’re getting on the Concorde to London in the morning. We’re buying a British firm, and you’re going to write the script for the press conference.”

A September morning in 2009: The manager of the local supermarket flips through my application, which discloses work experience and a salary history he’s not used to seeing. Plus there’s the whole Princeton thing.

He says, “all I have to offer is a job in the deli. Are you sure about this?”

It’s an excellent question, and the answer isn’t obvious, even to me. But I manage to convince both of us.

The Concorde was surprisingly cramped inside. The main thing that distinguished the experience from a puddle-jumping commuter plane was the digital display at the front of the cabin, which indicated we topped out at Mach 2 (over 1,300 mph) and 60,000 feet.

I had been told to pack for three days, but I ended up staying for 10. Those were flush times on Wall Street, and Merrill’s executives and support Gumbys alike were all housed at The Dorchester, widely considered one of the world’s finest hotels. (I suppose it is — they certainly kept up with my laundry needs.)

The target company was called Smith New Court. Late one night, at a crucial juncture of the negotiations, it became necessary to briefly evict the Smith New Court personnel from the giant Dorchester suite where the talks were being held, so the Merrill team could confer by speaker phone with other executives in New York. The Smithies needed a place to cool their heels, and the hotel’s business center was closed.

I was in my single room down the hall, casually dressed and thinking about bed, when there came a knock at my door. Suddenly a wave of bespoke-suited Brits came flooding into the room, including the top two executives of Smith New Court, herded by a junior member of the Merrill team.

Padding around in my bare feet, I served sodas and spring water from the minibar and tried to make everyone at home. Nervous laughter and small talk ensued for half an hour or so. Then the negotiations resumed, and a billion-dollar deal was struck.

There were more trips to London that summer, and over the next dozen years, various employers and clients sent me to Tokyo, Cologne, Shanghai and Cleveland. (I was able to squeeze in an Indians game — Jacobs Field is as nice as they say it is.)

I was the speechwriter for a CEO, I edited internal websites for two huge companies, I prepped executives for Congressional testimony, I helped clients spin bankruptcies, regulatory issues and involuntary CEO transitions. I developed a taste for custom shirts, car service and single-malt whiskey.

For a job that pays $10 an hour, the deli counter gig wasn’t bad. Probably the worst part was having to stand on my aging feet throughout a six-hour shift, except for a 15-minute break. That, and cleaning the goo off the cheese slicer at closing time.

I generally enjoyed waiting on customers, most of whom responded well to a cheerful smile. I learned that even though customers usually want their roast beef “sliced thin,” you have to set the slicer thicker than for turkey. I discovered that low-sodium ham isn’t bad, but low-fat cheese tastes like glue. Management wanted us to up-sell, so I said “would you like some salad with that?” and flattered myself that I was honing my marketing skills. At one time or another, at least three fellow employees asked some variation of “how old are you, anyway?”

I had started my own consulting business in 2007, and I did pretty well for a while. Then I did OK for a while. Then the economy imploded, and after having virtually no income for a year, it had become clear that my entrepreneurial experiment was, at the very least, ill-timed.

I applied for dozens of full-time communications jobs while I was trying to drum up clients, and it was hard to decide which was more depressing — forcing myself to network with people who weren’t going to do business with me, or crafting thoughtful cover letters to hiring managers who weren’t going to interview me. The guilty knowledge that I “should be doing more” repeatedly collided with the paralyzing reality that nothing in particular had to be done today.

At 51 (which is not old, dammit!), I’ve learned some hard things about the job market. It turns out that if the job description calls for “8-10 years of experience” in a role, that’s not really a minimum — it’s more like a maximum.

It turns out that “overqualified” is code for “too old.” (I’ve promised myself that the next time a potential employer tells me I’m overqualified, I’m going to offer to work below my full capacity.)

I kind of dared myself into applying for the supermarket job. While commiserating with another idle consultant about the work we did back in the day, I heard myself saying, “at this point, I can’t imagine turning down any job at any salary.”

The instant I said it, I started wondering whether I really meant it. When I saw the words “Now hiring!” on my supermarket receipt, it was time to put up or shut up.

The supermarket manager, naturally, said I was overqualified. If the line had come to me in time, I would have said “I’ve never worked retail before — maybe I’m underqualified.” The manager looked to be about my age, maybe he felt some kinship. For whatever reason, he gave me a shot.

As it turned out, I was only there three months. My new gig is a step up in both status and pay. On January 4 I became the parish administrator of Grace Episcopal Church in Madison, NJ. I’m now responsible for producing four weekly service bulletins and running the busy office at one of the largest Episcopal churches in North Jersey.

I got the position the old-fashioned way — through family connections. Up until a few months ago, it had been the Web Goddess’s job for five years.

So, let’s review: My wife landed a job in my field when I couldn’t. Now I have the admin job she held before her promotion. How’s the ol’ ego holding up, Kirk?

Well, negotiations with my ego are continuing. Ironically, each recent improvement in my income has brought fresh challenges for my self esteem.

For most of 2009 I was entirely supported by my wife’s income and savings. By any objective measure, a part-time supermarket job was a step up from unemployment, and I made a conscious choice to take pride in my work. But it took a while to get used to being spotted by friends in my white coat and funny hat. The Web Goddess aptly called it a “survival job,” and I used that term as protective cover.

The full-time church job feels more like a career transition. It also feels like an abandonment of the conceit that I’m a primary bread-winner who belongs in a globe-trotting world. I’m not sure I would have been open to taking the job if I had not just spent three months slicing cheese and cleaning up.

It helps — a lot — that I like the people I’m working with, and I care about the organization. For more than a decade the Web Goddess and I have found fulfillment and a powerful sense of community at our home parish of St. George’s Episcopal, and Grace is a similar environment in many ways. I see and feel the spiritual nourishment that Grace provides to its parishioners, and I feel privileged to have an opportunity to help.

Long ago I learned that job satisfaction does not primarily depend on how much money you make, or the type of work you do, or the prestige of the organization you serve. In 12 years at Merrill Lynch I played several different roles while my income steadily grew, and I went through cycles of being both energized and miserable.

No, the most important factor in job satisfaction is whether you get along with your immediate boss. It’s still early days at Grace, but I’m liking my chances, working for a woman of the cloth. (In the words of the prominent Episcopal theologian Robin Williams, “Male and female God created them; male and female we ordain them.”)

In addition to a paycheck, my new job provides support for my spiritual infrastructure. It helps me focus on living one day at a time, and on being grateful for all the blessings in my life.

And I am richly blessed. I’m safe, and healthy, and in love with my wife. I’m a United States citizen, having won that lottery the day I was born. I have a fixed-rate mortgage, and positive equity in a comfortable house in a nice town. Around the world, billions of people would trade places with me in a heartbeat.

The job gives me a reason to get out the door in the morning, and I look forward to arriving at the office. I’m doing real work that needs to be done, and I stretch myself to meet deadlines. People are counting on me, and I get recognized when I do good work.

If things get hectic, across the hall from the office is a … sanctuary … where I can seek through prayer and meditation to improve my conscious contact with God. Staff meetings end with the words “Go in peace to love and serve the Lord.”

I may never again make the kind of money I made a few short years ago, but I won’t have that kind of pressure, either. Not that it’s a slow-paced job — there are more than 1,000 parishioners, four Sunday bulletins in two different liturgies, a Eucharist or prayer service every day of the year, multiple tenants in a large physical plant, an office that buzzes with activity. The Web Goddess set a high standard of efficiency and excellence, and all the details seem overwhelming sometimes.

But it’s not the corporate world. After letting a detail slip one day, I told the Rector I was used to an environment where I’d be crucified for a minor transgression like that. She replied, “we think one crucifixion was enough — we focus more on redemption.”

The Wall Street Journal has just labeled the Cash for Clunkers program “one of Washington’s all-time dumb ideas.” (Hyperbole, of course — no program costing a “mere” $3 billion could possibly qualify for the all-time dumb list.) Here’s their reasoning:

Last week U.S. automakers reported that new car sales for September, the first month since the clunker program expired, sank by 25% from a year earlier. Sales at GM and Chrysler fell by 45% and 42%, respectively. Ford was down about 5%. Some 700,000 cars were sold in the summer under the program as buyers received up to $4,500 to buy a new car they would probably have purchased anyway, so all the program seems to have done is steal those sales from the future. Exactly as critics predicted.

Okay. I’d want to see a few more months of statistics before concluding that most C4C buyers bought cars “they would probably have purchased anyway,” although that’s undoubtedly true in many cases. Also, how does the September report compare with year-ago comparisons for the months just before C4C went into effect? (I spent a frustrating 10 minutes looking for raw statistics before realizing I just didn’t care enough to spend 11 minutes. But why don’t news reports provide links to data sources the way blog posts do?) Since September marked the start of the financial meltdown I suspect that might have been the last relatively strong month for car sales, which would skew the year-earlier comparison.

I wasn’t aware of the “Cash for Clunkers” program until today, when they started talking about ending it prematurely because it was running out of money. I’m not in a position to take advantage of the program personally, but I’m glad that it looks like Congress will add more money to it. I think the concept is brilliant — if the rest of the bloated and dishonest “stimulus” legislation had been more like this, I’d stop calling it the Porkulus bill.

Many conservatives argue that there should not have been a stimulus bill at all. I tend to agree, and I certainly respect the principles on which that argument is made. However, the simple political reality is that there was zero chance that the government would refrain from using stimulus spending in an attempt to revitalize the economy.

But while I think any stimulus spending may have been misguided, I’d be done talking about it if the legislation had been a pure stimulus package. The thing I find infuriating is the uncontestable fact that much of the money will not be spent until 2011 or later. It is fundamentally dishonest to pretend that the purpose of such spending is to stimulate the economy now.

That’s why I love the Cash for Clunkers program. People commit to spending money right now, then they wait for the rebate. It gives a boost to the auto industry (and remember, you and I now OWN a significant chunk of that industry). It gets older, less efficient vehicles off the road in favor of more fuel-efficient models. Perhaps best of all, it lets individual citizens decide whether they personally want to participate in the program. Win, win, win, win.

Of course, some conservatives see it differently. On Planet Gore, National Review Online’s anti-environmentalist blog, Henry Payne weighs in:

Worse, Democratic demands that the guzzlers be permanently shredded means that already hurting used-car and -parts businesses will suffer. By insisting that the cars not only be crushed — but also that their engines be disabled — Congress’s decree will penalize the industry at time when a dozen U.S. parts suppliers have filed for bankruptcy this year. […]

The victims will be lower-income Americans who typically buy only used parts and vehicles. “Now you’re removing cars people could afford, and they’re not available anymore,” says Norm Wright, a Denver recycler. “There will be fewer cars to pull from, so the price of parts will go up.

Pish and tosh. This strikes me as Obama Derangement Syndrome, or maybe Government Derangement Syndrome — the idea that any initiative by one’s political “enemies” must be not just opposed, but also attacked and belittled. Once it becomes inevitable that there is going to be an attempt to stimulate through government spending, Cash for Clunkers is about as good as it gets.

The original program included “only” $1 billion for rebates. Now the House has voted to add $2 billion. Those amounts alone have no meaningful stimulative effect. But surely other sensible stimulative initiatives could have been devised.

At the risk of sounding like a Republican, the most effective way to stimulate the economy would have been… wait for it… a tax cut. No, not a “tax cut for the rich” — a tax cut aimed directly at middle-class and lower-middle-class wage earners and business owners. I’m talking about cutting Social Security taxes — the most regressive form of taxation there is.

I don’t recall where I first heard this idea — probably one of the political podcasts I listen to on the treadmill. But the more I think through the implications, the more I like the concept. The Social Security portion of FICA — currently 6.2% on the first $106,800 of annual wages earned — is more regressive even than the sales tax, because there’s no cap on the sales tax.

It’s too late now — the Democrats already rammed through their Christmas-tree porkulus package, and the president put the lie to the idea that it had to be passed now now now now now by waiting days to sign it. But if the main point is to pump money into the economy, why not temporarily reduce that tax by, say, 1 point? Sure that creates a greater Social Security deficit in the future… but Porkulus increases a different deficit, and it’s not as efficient in creating short-term spending.

A Social Security tax cut could have become effective as quickly as employers could adjust their payroll calculations. Because of the very nature of the tax, it benefits lower-income people more than it benefits the “rich.” If the only way to get Democratic support to pass such a bill were to make sure none of the filthy, immoral, $106,801-earning Plutocrats got a single dime of benefit, you could even phase out the temporary tax cut at higher income levels. Of course, you could also couple such a tax cut with a much smaller, better designed spending program.

Would some people undermine the stimulation by saving the extra bucks rather than spending them? Sure. But a LOT of the money would get spent… and the part that is “wasted” by being saved would at least be going into the savings accounts of individuals, who could make their own eventual decisions on how to spend it.

I’m not recommending this now — I’m opposed with every fiber of my being to any additional “stimulus” effort before what we’ve already done has a chance to filter through the economy.

But am I missing something? Why would this not have been a better idea?

With Senators crossing party lines in both directions, the Senate voted 50-48 today to strip $1.75 billion in funding for additional F-22 fighters from a military authorization bill. Hawk though I am, I’m pleased by this, and this passage from the New York Times explains why:

Critics have long portrayed the F-22 as a cold war relic. The plane was designed in the late 1980s, when the Air Force envisioned buying up to 750 of the planes to dominate dogfights with Soviet jets.

The F-22 can perform tactical operations at higher altitudes than other fighters, and it can cruise at supersonic speeds without using telltale afterburners. With a stealthy skin that scatters radar detection signals, it was also meant to sneak in and destroy enemy surface-to-air missile defenses, clearing the way for bombers and other planes to follow.

But the F-22 has never been used in war, and in recent years, the Pentagon’s focus had shifted to the fights against Islamic insurgents. The Bush administration also tried to halt its production.

Proponents say more of the planes are needed as insurance for possible wars with countries like China and Iran.

I propose this rule of thumb: If President Obama and former President Bush both want to cancel a weapons program, the Congressional pork protectors should lose.

The economy is sending mixed signals — which at least is an improvement over just a few months ago. Newsweek reports today that “the Fed has become both more optimistic and more pessimistic,” with GNP expected to recover slightly more quickly than previously expected, even while unemployment creeps slightly higher. The term “jobless recovery” is being attributed to Fed Chairman Ben Bernanke, although the term actually was floated by a Senate Republican in a private discussion, and Bernanke responded only that “it could be.”

The bottom line is, whatever you have left in your retirement fund may start growing again, but if you’re looking for a job you’re still hosed.

The irony, of course, is that job creation depends on business confidence, which depends on economic growth, which in the long run depends on… higher employment levels.

So for all you business owners looking to implement plans you’ve had on hold, if you’re still understandably wary of taking on new headcount, I have a solution: Hire an independent consultant on a contract basis.

Contracting with a consultant is a much smaller commitment than hiring an employee, and your dollars will go further. An independent consultant will know that he or she has to hit the ground running, so you can get a faster payoff on your project.

Huge consulting firms often use a senior partner to convince you to sign a contract, then assign twenty-somethings to do the actual work. But with an independent consultant, the person you seal the deal with will be doing the actual work. So don’t be put off by the fact that the independent consultant may be a little older — a greybeard, so to speak. You’re not buying all those years of experience, you’re just renting them.

At The American, the Journal of the American Enterprise Institute, Phil Levy writes:

As unemployment rises ominously toward 10 percent and the economy continues to appear listless, leading economic voices have begun to call for a second fiscal stimulus. The first stimulus was controversial among economists; it seemed to discard a great deal of what had been learned about macroeconomics in recent decades. The calls for a second stimulus seem to discard logic altogether.

Keep in mind that the first time around, we were told that the porkulus bill had to be passed now now now now now — not a day to spare if we want to ward off catastrophe. So Congress passed a pork-laden bill that included hundreds of billions of dollars that will not be spent until 2011 or later, and thus have no stimulative effect now. And after the bill was rushed through so quickly that there was no time for legislators to even read it, let alone have a thorough debate — the President waited four days to sign it.

Levy’s conclusion:

And this is exactly the logical problem with a second stimulus. If we accept the premise that the Democrats did the best that could be done and exhausted all stimulative spending possibilities for 2009 and 2010 on their first try, then there’s nothing left to be done in a second stimulus. Additional spending would just pour uselessly into the out-years. If there are still good near-term options available to be funded by a second stimulus, that just speaks to the poor design of the initial stimulus package that passed them over in favor of ineffectual spending years later.

Neither of those possibilities argues for opening up the public coffers for hundreds of billions of dollars more.

Bernie Madoff got the maximum sentence of 150 years in prison for stealing billions in what the judge called his “extraordinarily evil” Ponzi scheme. Probably it should now be renamed a Madoff scheme — Mr. Ponzi has been dead since 1949, and his take was denominated in mere millions. He was sentenced to only five years in prison in his initial trial for the scheme that made him famous, and upon release he promptly returned to a life of crime.

Madoff, 71, will never draw another free breath, and that’s probably the way it should be. I hereby repent from my smug earlier post, “Sorry, No Tears Here for Madoff’s Clients,” written just days after Madoff’s arrest, when it seemed like the victims were primarily high-rollers who got too greedy chasing returns that were too good to be true. It turns out many of the victims are clearly worthy of sympathy, and besides, even high-rollers don’t deserve to be cheated in a highly sophisticated scheme.